About this Show

Squawk on the Street

News/Business. Mark Haines, Erin Burnett. Opening bell market action.

NETWORK

DURATION
02:00:00

RATING

SCANNED IN

SOURCE

TUNER

VIDEO CODEC
mpeg2video

AUDIO CODEC
ac3

PIXEL WIDTH
704

PIXEL HEIGHT
480

TOPIC FREQUENCY

Toyota 16, Ben Bernanke 14, Greece 13, U.s. 10, Us 9, Erin 8, S&p 8, Sec 7, Europe 6, Rick Santelli 5, Akio Toyoda 5, Steve 5, Jeff Skilling 4, Skilling 4, Florida 4, Steve Liesman 3, Alan Valdes 3, Houston 3, Michigan 3, Copenhagen 3,
Borrow a DVD
of this show
  CNBC    Squawk on the Street    News/Business. Mark Haines, Erin  
   Burnett. Opening bell market action.  

    February 24, 2010
    9:00 - 11:00am EST  

9:00am
>> health care costs that are out of control because of government policy malfeasance. the federal government has, and the state governments, have pandered so much to the trial lawyers, that they in fact have inflated the cost of health care as i said one-fourth, harvard university, one-fourth of all medical procedures are not medically necessary. that's an enormous amount of waste and cost. you don't have a competitive sale of health insurance across state lines. what if i was the governor of michigan and said you can buy no car if you're a resident of michigan unless it's made in michigan. you would call me some kind of tyrant. you've got, for years, for as long as i can remember doing my taxes, i had virtually no consideration for my health care expenses in my taxes but yet an employer gets a 100% writeoff. there are just so many things you can do to fix the bad public policy that is screwing up health care in america today. >> it's going to come to a head
9:01am
tomorrow. we know that. great seeing you as always leader armey. thank you. make sure you join us tomorrow. "squawk on the street" is up next. live from the financial capital of the universe, this is "squawk on the street." good morning, everybody. wednesday morning. i'm mark haines. >> i'm erin burnett. front and center, benjamin s. bernanke. >> yes. >> will be testifying in front of the house financial services committee about the economy and anything else they want to talk about. that'll be live in an hour. >> how about the exit strategy? imagine there will be some questions about that. the sec meets on possibly curbing short sales. huge issue for the market. full details coming up. >> and president obama meeting with key business leaders. it's all happening during this show. we've got a lot of breaking news, big headlines for you. we will be all over it, mark. how are your futures? >> not too good. >> no.
9:02am
>> up 0.70. we get a little break here because we closed a point above fair value. but, you know, looking at maybe 15, 20 points on the dow at the open. let's hit the markets. peel back the layers of the onion starting with brian shactman at the big board. >> thank you. listen, asia and europe were pretty mixed. germany, their economy in an absolute standstill. doint need to go over bernanke and all things going on in d.c. will tobacco the dog and pony show or real insight into an exit strategy? we'll have to wait and see for that. i want to talk about h & r block. fascinating. they said they're not going to meet 2010 guide annals. total tax returns to date down 6%. the reason? people are doing it themselves. how about earnings? jm smucker, basically folgers coffee, pb & j. maybe the tradedown is still in vogue. they had very strong numbers. they raised full-year guidance as well. chico's, case study in how to do retail right. doubled expectations compared to the street. if you boost sales and control
9:03am
costs you get a huge pop. they initiated a dividend as well. finally, toll brothers narrower loss than expected. revenue pretty good. still cautious on pricing but they feel the last few weeks have been really strong. >> auto desk reported after the close yesterday, up 7% though didn't offer guidance on fiscal year 2011 it expects to see its margins increase significantly. up this morning over at needham. google this morning, lots of trouble in europe. three google executives convicted in a trial involving some video on youtube. also the eu in an informal probe that's brought by a microsoft subsidiary, a complaint about its ad search antitrust issues, microsoft is up this morning, and the dalai lama is treating -- now yahoo is connecting up with twitter. you can update your twitter account from your yahoo account. garmin posted better than expected earnings and it also is boosting guidance despite the fact that a lot of folks say it's getting its clock eaten by apple.
9:04am
finally stec, it offered a dismal outlook and it earns a trio of big downgrades at big firms. let's head down to the nymex now. >> oil prices are up about ten cents right now closing in on $79 a barrel as traders wait for the inventory report that comes out from the energy information administration at 10:30 today. keep in mind, though, the industry group the american petroleum institute showed a big decline in crude supplies yesterday in its report down over 3 million barrels though the consensus is for a build of about 2 million barrels for crude supplies. meanwhile take a look at what's happened to gasoline. that is part of the market that has really driven prices for food oil as well and we are -- >> cnbc has learned that the first of the mini madoffs, arthur nadal, florida money manager and philanthropist is about to plead guilty to 15 criminal counts. you'll remember nadal's six hedge funds he managed went bust in early 2009. he actually disappeared for a
9:05am
week then turned himself into authorities. has been in custody here in new york for almost ever since then. he is expected to plead guilty at 11:30 this morning to all 15 counts he was charged with. arthur nadal is 77 years old. back to you. >> all right. let's go to rick santelli at the chicago board of trade. good morning, rickster. >> good morning, mark. the first thing that was passed around on the floor, freddie mac announced $6.5 billion in q4 losses, cumulative losses approaching $70 billion. it's a lot better than a year ago fourth quarter when it was about $23 billion. there's an asterisk here. they took the shackles off. they were shrinking up until christmas eve and then if you looked at last week they announced they'll be buying very delinquent loans. we need to watch these losses because nobody else is. the dollar index, well, it's not very much unchanged but we do see that the euro is starting to
9:06am
slip back towards 135. you want to watch that. and of course $42 billion in five-year notes will get auctioned at 1:00 eastern along with 11:30 eastern $25 billion of 56-day bills to replenish one of the fed's accounts. back to you. >> thank you, rick santelli. let's check out overseas. asian markets, except for shanghai, they were down across the board. guy johnson in london, what's going on over there, guy? >> mark, we're just waiting for bernanke. that really is the story. yesterday was an absolutely frantic session. we're marking time this morning but as you guys i'm sure know we'll have a busy afternoon because all eyes, all ears very much focused on what is happening with the fed chairman. let's take a look at the european markets, fairly mixed at this point, really just flat looing. let me show you the stoxx 600. this is the picture at the moment. the big story, there you go, absolutely flat at the moment. at 246. the story which i'm sure will
9:07am
appeal to mr. haines is what is happening in greece. 25,000 greeks striking today once again, concerned about the austerity measures, so that is grinding athens to a halt. i'm not sure how many of them are pensioners. but euro/dollar 1.3542. back over to you. >> thank you very much, guy johnson. more toyota testimony today on capitol hill. that's where we find cnbc's phil lebeau. >> mark, akio toyoda the president of toyota along with yoshi inaba the highest ranking executive in the united states both arrived on capitol hill. they have very brief statements in japanese essentially saying they were looking forward to talking with lawmakers. for akio toyoda the importance of this appearance is a combination of symbolic and to send a message. the symbolism, he feels sincere, he is apologetic about the problems at toyota. you will hear a number of statements from him today outlining how toyota plans to
9:08am
address the issues that they've run into with these quality recalls. he is going to lay out the plan for improving quality while yoshi inaba is more likely to get pointed questions in terms of the speedness of the recalls and also likely to face a number of questions about whether toyota is convinced the electronics in its vehicles are not an issue behind unintended acceleration. earlier this morning on "squawk box" we heard from congressman issa regarding what the committee would like to hear from the toyota executives. here's what he had to say. >> what can we get away with, what is the min we need to do? that's what akio toyoda has to convince us they're not going to do anymore. they have to put safety first and are doing the most they can to be positive the cars are safe. >> one of many congressmen talking and questioning akio toyoda along with yoshi inaba when they testify a little later on today. erin, the testimony for those two gentlemen likely to happen
9:09am
sometime shortly before 1:00 this afternoon. obviously we'll be here and will bring it to you live. >> thank you very much, phil lebeau. everyone is going to be eagerly awaiting that. the other thing everybody is eagerly awaiting in the market is ben bernanke facing the house financial services committee within the hour presenting his semiannual testimony on monetary policy and the economy. it was easier when it was called old humphrey hawkins. steve liesman knows what he's likely to say and, perhaps, what he's likely to be grilled on. >> this is going to be really interesting. i expect fed chairman ben bernanke to do the talking the tightening talk but walking the easy walk before congress today as he explains how the fed is eventually going to withdraw liquidity from the system but remain easy for the next several months. it stumbled a bit in recent days as the bond market has been buffeted by the announcement yesterday that the treasury is restoring that supplemental financing program that rick talked about. essentially no other way to look at it. it is draining $200 billion of excess liquidity and the fed as you know raised the discount rate last week.
9:10am
meanwhile the fed has characterized both moves as essentially mechanical, not a change in policy. sources insist the policy is unchanged, that is to stay low for an extended period and the two happened together by coincidence. some believe the decision could prompt bernanke today to sound more dovish than he otherwise would. >> lou crandall says, we suspect that bernanke would have worked hard to avoid any hint that the fed already had a timeline for tightening under any circumstances but the events of the past week make it even more likely that he play down any risk of an early start. that according to lou crandall. perhaps as interesting is bernanke's views on the economy. north of 3% growth for this year through 2012 and it builds you can see to 4%. but recent data has not been joyous. jobless claims and consumer confidence have both disappointed. see how bernanke characterizes that. if that weren't enough drama this is bernanke's first testimony since winning confirmation by the senate in
9:11am
january. and there is still plenty of anger on the hill about the bailouts and debate about the fed's role in the new regulatory world which is still under discussion in washington. the mix of tightening talk, easy money walk, economic outlook, populist anger should make for a compelling couple hours not to mention, mark, the s&p auction rick mentioned, bond auction later in the day, toyota, and now bernanke. an interesting day, mark. >> thank you very much, steve liesman. toll brothers reporting narrower than expected quarterly loss. shares higher in premarket. next, we will go inside those toll brothers numbers. plus the bernanke testimony steve referred to. possibly new short selling rules for the market. new home sales. the president meeting with top business leaders. it's all on "squawk on the street" plus of course the toyota testimony. >> which brings us to our street poll. do you believe toyota when the company says the problems were caused by sticking pedals or poorly placed floor mats?
9:12am
yes or no? do you believe toyota's explanation? it's a web poll not an e-mail poll.
9:13am
9:14am
we're back. the greeks are so unhappy about possible social cuts they're staying home today. all of them.
9:15am
one big strike. protesting tax hikes, hiring freezes, and a possible increase in the retirement age from 61 all the way up to 62. >> wait. i thought it was 63. >> a little more than a year. >> just not acceptable. >> all part of greece's massive budget deficit. despite the protests some polls show a majority of greeks may support the cuts. we'll have to see how that works out. >> we go back to the little piece of trivia, mark, which is it's a year since independence. there have been 180 years since greek independence. they had about an eight-year fight. how many years have they been in default? >> it's been how long since independence? >> 180 years. >> i'll say 170 years. >> all right. well, now, maybe i set it up. it's 90 years. it's half of the time. >> they've been in default. >> the record is not the
9:16am
greatest. >> wow. >> it sort of said a lot. attorneys for former enron ceo jeff skilling take their case to the supreme court monday challenging the conviction of the man convicted of helping pull off one of the biggest frauds in history. at issue skilling's attorney says it was unfair to hold the trial in houston because houston itself was involved in the case, a victim in some ways. we spoke with the attorney daniel petrocelli earlier this morning. here's what he had to say. >> this case is very much like the oklahoma city bombing case that was transferred from oklahoma city to denver. the community blamed jeff skilling. they blamed ken lay. and they sought vindication through the trial. >> skilling case goes to the supreme court on monday and we will be following it all the way, mark. >> all right.
9:17am
luxury home builder toll brothers trading higher in premarket after reporting a narrower first quarter loss than expected. shares of toll brothers pretty flat this year in comparison to the ishares dj u.s. home etf which is up 7%. here to go inside toll's numbers, buck horn, home builder and real estate analyst of raymond james. a new face to "squawk on the street". and an analyst at deutscha bank. what do the toll numbers look like to you? >> well, toll brothers numbers were very similar to the other builders in they were mixed in terms of reporting metrics. as you mentioned they have been under performing their peers because investors in betting on a housing recovery have been wanting to play the first-time builders as opposed to luxury builders. the results are similar to their peers but the borrow is set a
9:18am
lot lower. >> buck, are these numbers good or bad for toll in your opinion? >> i think they're pretty positive overall. the key focus will be on the net orders, and orders were up 98% year over year well ahead of what we were looking for, which was something close to 60%. so as long as people are ordering toll brothers houses and the traffic is going in the right direction i think the stock will move in the right direction as well. >> nishu, i'm just curious why people according to our survey we ran yesterday, most people think their home will be less in six months than now. so why are people buying new homes? i mean obviously those are existing homes. why would you buy any home at all right now if you anticipate prices will go down further? >> that's a great question and i think there are so many stimulus factors in place that that is giving people a boost. they feel that those will be temporary. beyond that, even in markets like detroit where the population is actually shrinking, people still buy houses because of natural reasons. they want to move to a
9:19am
particular neighborhood or because of a job location so i think most of the demand we're seeing right now is because of the temporary factors or because of the natural life cycle factors. >> and i know when you look at the numbers, i mean, we are running at levels never seen in american history in terms of how few people are actually moving into homes. relative to average. but, buck, it still begs the question of have we just seen an artificial pop because of the new home buyer tax credit which has been extended and once that goes away then we actually fall down and find out where the real level is? >> i completely agree with that. i think that -- i wouldn't even characterize it as being a big pop. i mean, all we got from the roughly $1.8 trillion the government has committed to housing has been some kind of stablization or flattening out. so we didn't even really get that meaningful a recovery. when most of those factors in that $1.8 trillion are set to expire between roughly march and june or july or so, we will find out after that how strong
9:20am
organic demand really is and we expect it to be weaker than the levels we're seeing right now. >> all right, buck, nishu, thank you both very much for your input. check on dow futures right now, we're a tad below fair value. we're up, i beg your pardon. we're a tad above fair value. we're up one right now. >> one point. that puts you at 10,300. >> that's the buzz beyond the big board. >> what? okay. i'm going to look at something. later full details and analysis of the bernanke testimony. tell us what you think about the toyota testimony. do you believe the problems are caused by sticking pedals and misplaced floor mats? talk about people saying what they think. go ahead and vote.
9:21am
9:22am
9:23am
as we count you down to the opening bell here is a check on the futures. the s&ps down 0.60. fair value down -- minus one. therefore, half a point above. why am i having this trouble talking this morning? half a point above fair value. so we're so close to fair value that really not going to move much at all at the open. >> so let us get the buzz from beyond the big board then mr. haines and steve joins us managing director at web bush bright and early. mr. massocca, lots to talk about. what's important for you? >> you have to keep your eye on the sovereign debt crises wherever they're popping up the
9:24am
latest obviously greece. it appears to have quieted down but if it bubbles up again it will be extremely negative for the markets. earnings continue to roll in for the fourth quarter and they're spectacular. around the neighborhood of 8 o% of companies who have reported have exceeded wall street expectations. it appears corporate america is doing a wonderful job of managing through the tail end of the bad economy and is generating good numbers so i've seen estimates now for s&p earnings for next year that are up around $90. you put a normal multiple on that and the market needs to go up 15% to 20% if those numbers are actually going to be achieved. >> steve, do you know anyone who actually paid attention to the earnings? i grant you they were good. with greece and, you know, the deficit and all that going on, i
9:25am
didn't see anybody talking about earnings at all. >> well, i think a lot of it got baked in early in december when the market moved up late last year people saw it coming. i think that, you know, we bounced with about an 8% correction off the greek crisis. we've gotten back an awful lot of that up until yesterday so i think it's being driven by the good earnings, the fact that we snapped back so quickly in the face of what was going on in europe. i agree with you, mark. greece is a very important story and it hangs over the market like a pall. i don't disagree with you there. >> all right, steve. thanks a lot. appreciate it. >> good to see you mr. massocca. >> final countdown to the opening bell coming right up. once again futures pointing to a very quiet open. >> also ahead what new short selling rules could mean for you. we'll be back with that in two minutes.
9:26am
9:27am
9:28am
"s" stands for straightforward. as in up-front, honest... total transparency. straightforward is the way td ameritrade does business. simple, fair pricing. no hidden account fees. no shenanigans. just good value. real help. smart people who are easy to work with. that's what td ameritrade stands for. what does your investment firm stand for? it's time for fresh thinking. it's time for td ameritrade. you are watching cnbc "squawk on the street" live from the financial capital of the
9:29am
world. opening bell going to ring in a little less than two minutes. in the headlines at this hour, florida fund manager art nadel will plead guilty charged with six counts of securities fraud, eight counts of wire fraud. home builder toll brothers posts a lower than expected quarterly loss. futures as we've been talking about right around fair value. up a little or down a little at the open. after yesterday's bummer we'll take that. >> and as we count you down to the opening bell let's bring in michael gurka global asset strategist with empower global funds. michael, what do you want to hear? just what is the most important question you want asked to ben bernanke today? >> well, without question, i want to liken the fed move and understanding over the last year to a tight rope balance act which is successful, almost from one end to the other, and i say
9:30am
that because of such a fine line to keep up with stimulus and at the same time confidence within the economy remaining where it's at. as it starts to slip i'm watching the wording not only of when the fed might implement any type of tightening but for the same understanding it's for myself looking at how the fed is going to gauge confidence. right now they've, i think they've done a very good job and they don't want to lose that. >> okay. and in terms of the market today, is there anything that you think he could say that would matter, would move it? he's been incredibly consistent. >> well, i think the fed and chairman bernanke is very cognizant of what you just mentioned about s&p earnings growth and how this is kind of spilled into the market and looking forward is going to increase. i think that they like the way the markets have produced themselves off these low levels of interest and that's why i think right now there is a premise that if things can stay status quo at least into the fourth quarter it's been a
9:31am
successful procedure. >> okay. >> i think we'll look for anything that mentions inflation today. >> thank you very much. >> okay. there go the bells. here at the big board, the society of foreign consuls in new york. at the nasdaq stars of usa network's like cotter series. >> our market reporters are standing by. let's get straight to it. we're open and up a little bit. brian is here with us on the floor. >> hi, erin. at h & r block right here opening up down more than 15%. 1652 was the open so it's getting hit hard. basically the story is this total tax returns to date down more than 6%. they're not going to meet their fiscal 2010 guidance so they're going to get hit hard. people are doing their taxes on their own. toll brothers is up. we talked about it, had a nice conversation on "squawk on the street" a few mints ago. cancellation rate the lowest since 2005. still cautious on revenues but they say just in the last few weeks they've seen their best couple weeks in a long time.
9:32am
saks margins more than 30% compared to a year ago around 21%, great control of costs and inventories. tjx beat on the bottom, a little light on the top. the guidance on the high side of expectations. buying back shares. they're hiking their difficult denld. i also want to tuch ouch on alt returning 35 cents a share to its share holders. let's go to bertha coombs. >> we're starting off up about 11 points or so. we've been in such a tight trading range the last few days. right now auto desk among those really boosting the big caps posting better than expected earnings and earning an upgrade over at needham and company. dollar tree also posting better earnings and boosting its outlook above expectations. it sees earnings of 70 to 80 cents. google this morning, lots of
9:33am
headlines out of europe. three executives were convicted in a privacy case involving youtube in italy and the eu also looking into antitrust complaints against google. as you get bigger the regulatory complaints get bigger as well. had hoped to have salex pharma here, a biotech yesterday that was halted all day starting the day up about 17% after the fda panel recommended its drug to treat a liver disease. stec is the opposite down nearly 30% after the company warns for the current quarter and receives a slew of downgrades, jp morgan, tomas wiesel and pacific crest among others. this morning a number of chip stocks are starting the day off in the black. we have marvel up 2%, intel up nearly 1% as well. let's head over to the nymex and sharon epperson. >> some of the trade ners the pit wondering why gold is so much lower considering where some of the other commodities are trading today. we are seeing gold though coming off its lows of the session.
9:34am
but below that $1100 mark it's going to be key there to see if gold continues to trade below here because on the down side we're looking at 1075 as the next level. keep in mind with the federal reserve signaling about liquidity and what is going to happen there we are looking at some of the dollar strength contributing to the weakness we're seeing in gold prices some analysts saying that may continue. meanwhile in terms of the copper market we're seeing that basically flat right now though china's customs data does show that there have been month-to-month declines in copper imports. we'll continue to watch that and also to see if restocking takes place as it traditionally does after last week's chinese new year. elsewhere in the commodities sector we are looking at weakness, the crb index down over 1% right now as we see, have seen a little bit of a rebound in the dollar over the last session or so. and also in terms of oil prices, we are seeing oil prices up a bit. rebounding a bit here. nymex up about 30 cents as we wait for the energy department report on weekly inventories at 10:30. rick santelli, to you in
9:35am
chicago. >> reporter: the markets, every sector seems to have a different view of what ben bernanke may say. if you look at the fixed income markets, two-year note yields are up a bit. now, what does that mean? the curve flattened from like 290 to 281 in a very short period of time. usually curve flattening in this instance may mean the fed will be removing more liquidity. not many believe that. but that's one dynamic. now you look at the dollar. keep in mind removing liquidity should be dollar friendly. the dollar is down against every futures currency in front of me, the yen, the peso, canadian, the british, the euro, the swiss franc. as a matter of fact on the euro we got it down close to 135 1.35 on a closing basis yesterday. it's bouncing. we want to watch that as well as we get in front of mr. ben's testimony. mark haines back to you. >> rick santelli, thank you sir. a quick check on the markets for you. dow actually doing a little better than the futures told us they would. up 41 right now. nasdaq up 4.5.
9:36am
i beg your pardon. nasdaq is up 13. s&p up almost five. your cnbc edge now. good morning, gentlemen. >> good morning. >> good morning, mark. >> ted, where's the market going? >> i think it's going to go higher. we've got, you know, hopefully bernanke will come out and give some indication of what the fed is going to do with monetary policy and also what they're going to do with the mortgage backed security program. i think earnings season has been fabulous. we're seeing more and more data that business spending is picking up and that companies are going to start expanding if you look at the reports from texas in-laws strumstruments,
9:37am
hewlett-packard and whole foods we're seeing some expansion in the future. that's good for the markets and i think it's going to continue throughout the year. >> jason, what could bernanke say today that might hurt the market? >> well, i think he could say that he's actually going to tighten more quickly than people are expecting. i mean, i think that obviously this move with the discount rate last week, i think, was -- they described it as a technical change. i think they were right. the fed has a lot more tools now available to them. they could pay interest on reserve. so i think fed policy is going to be a lot more nuanced in the future than it has been in the past. what worries me, mark, i got to be honest with you, i guess it's easier to beat up on congress. i'm not sure a lot of these nuances are going to be appreciated by the people in the house financial services committee. and, you know, unfortunately i would expect the chairman to probably get beaten about the head and shoulders, you know, explaining to congress why he raised the discount rate. that could make people a little
9:38am
uneasy as well. it may not be what the chairman says, but it may be congress's reaction to what the chairman says. >> it could be interesting that he will be forced to and i'm sure he is prepared to go very clearly on the record as to what this discount rate increase means for regular interest rates. if he says, yeah, i have no intention of doing anything with those for a very long time, that would be important to the market. if he actually came out and said that. >> right. erin, i agree with you. i think, you know, the hard part is as i see it this year it's almost inevitable that the fed's independence is going to be questioned, challenged. because you have political forces out there that desperately want jobs and you also have a fed that, you know, wants to take away some of the punch bowl for good reasons. and that, i think, inevitably is going to lead to some political tension. so i agree with you. i think that the chairman has been very clear, you know, all the way around. but again, i think it's the political reaction to what he's
9:39am
doing and what he's saying that could present a problem. >> all right. jason, thanks a lot. >> thank you. >> and of course ted parrish, thank you, too. what's up? >> lots of up and down for gold. we're both having trouble speaking today. over the past week it's down about 2%. today down just slightly. we'll talk about the gold trade plus we're going to talk about some new short selling rules which may matter for a whole lot of people watching maybe they slipped something into our bacon this morning. >> ah, that could be it. >> maybe someone is -- >> or we're having a salt shutdown. >> that could be it. today's street poll, toyota executives blaming their problems on sticky pedals and misplaced floor mats. do you believe them? vote now. again, not an e-mail poll. it is a web poll. love to get your e-mails. but they will not count in the poll. squawk on the street.cnbc.com is the place to vote.
9:40am
i was just in town for a few days, and i was wondering if i could say hi to the doctor. is he in? he's in copenhagen. oh, well, that's nice. but you can still see him! you just said he was in... copenhagen. come on! that's pretty far. doc, look who's in town. ellen! copenhagen? cool, right? vacation. but still seeing patients. oh. [ whispering ] workaholic. i heard that. she said it. i... [ female announcer ] the new office. see it. live it. share it. on the human network. cisco.
9:41am
9:42am
but in business, only two matter: red and black. red, well, no one wants that. black on the other hand, has strength. black is always in style. it's what business looks best in. black is where growth and success happen, and it's easier to get there and stay there in ontario, canada, especially with our competitive tax rate. ♪ ontario, canada - the world works here.
9:43am
it is time for a commodities corner. gold down nearly a percent over the past week. traders going to be watching ben bernanke closely today for gold and everything else. for more on that, the chief currency strategist joins us at cmc markets. always good to see you. >> hi, erin. how are you? >> so let's talk about gold. you think gold is going to go down and i warn you a lot of our viewers will be very angry when you make this case but go ahead and make it. >> well, it is going down but we're still in the gold bull market. it will have to go down by around 30% from its $1,095 high.
9:44am
the easy answer for why gold is going to come down or is expected to come down more is because of partially because of the dollar's upside potential as the fed reduces liquidity. without actually having to raise rates. but there is one thing, erin, which is last week actually gold hits an all-time high versus the euro. we know the euro is not doing so well against the u.s. dollar. so you have euro and we have gold and you have the u.s. dollar. we know that the u.s. dollar is doing very well against all of these too. >> right. >> we know gold hit an all-time high against the euro before starting to come down so that really ensures our call for a lower gold and dollar turn. >> this sounds like what you would call a buying opportunity then? in gold? >> it would only be a buying --
9:45am
no, no. it is still a selling opportunity. we still did not even go to the 200-day moving average of $1,025. i think we still have to go down all the way towards 1,000, even probably towards 980 before people are going to start to come back in. and if you remember, the indians bought gold around $1,140 and probably want to get the chinese to get back in the game, probably not going to do it but right now we are looking for lower gold. >> thank you very much. lower gold, mark. >> two big stories this morning from scott cohn an exclusive with the attorney for former enron ceo ken skilling, plus big news on a florida fraudster. scotty. >> arthur nade is the first of the so-called mini madoffs. the six florida hedge funds he managed were supposedly worth $350 million under the name
9:46am
scoop, victory, and valhala and went bust early last year flooded with redemptions following the mad offscandal. art nadel went missing for a week and turned himself in a little over a year now clarnlgd with 15 fraud counts. authorities say he was diverting money to his own investments. he'll plead guilty to every one of those later this morning. jeff skilling, a huge loose end. this case has implications not just for jeff skilling who has already served three years of his 24-year prison sentence but may also define once and for all what constitutes fraud. skilling's case is one of three the court is hearing this term on a statute that says it is a crime to deprive your employer of your honest services. critics say the law is unconstitutionally vague. also at issue whether the case should have been moved from enron's hometown of houston all this before the supreme court on monday. skilling's attorney told us exclusively this morning that the case offers lessons for the current financial crisis.
9:47am
>> we told that to the jury in mr. skilling's trial that just because a large company can spiral into bankruptcy because of a punishing liquidity crisis or other financial circumstances doesn't mean people were committing crimes. >> daniel petrocelli talking about ken skilling. the high court will hear the arguments on monday and a ruling is expected by june. mark? >> thank you very much, scotty. sec considering new short sale restrictions. they look like curves. if a stock is down by a particular percent you can't sell it short for a while. what will this mean for the market? joining us now, alan valdes and gordon charlop who spent most of his life being sold short managing director of rosenblatt
9:48am
securities. >> he's angry at you today. i don't know why. >> i'm not angry at him. >> he's carrying angst, erin. >> gordon and i have a zinger type relationship. >> yes. >> we zing each other. >> yes. >> we like each other but we enjoy the repartoire. the thrust and parry. >> oh, my gosh. >> alan valdes, what do you think? should they mess with the short sale rules? >> i think it's a good idea. we saw with lehman bear stearns the public was outraged they dumped on these stocks so much. it's a good idea just to slow it down. will it work, 10%? we have ten exchanges in the country, 50 dark pools at least. it's debatable. we would like to see these guys, these market measures exempt because it does add a lot of liquidity in the market. it's a useful tool used properly which these guys use properly every day and we see eventually
9:49am
short sales become buyers. >> gordon? >> i respectfully disagree. i'm not a regulation kind of guy. i don't think there is any need for it. if you look back also to when it started, it was difficult. there is a cost of regulation, the actual ergoo nomics of hand held in a market that's got multiple routing destinations. you're not exactly sure. you're trading in micro seconds. what is the tick at any given second? i think it brings on a lot of burdens that are unnecessary. >> sounds like you're saying let's just say they did this, if a stock goes down 10%, we all remember when the banks were going down they did this temporary rule that you weren't allowed to short them but if something goes down 10% you can't sell them that day or the next day. you're saying it's not that easy. you never know when it actually hits that tick where you should start banning it. >> right. it's a difficult situation. so many different destinations out here erin. how do you figure out, you know, what is the plus tick when
9:50am
everything is trading a hundred share lots you take an active stock. >> in different places. with the dark pools does flynn even know? as part of financial reform aren't we going to find out more what's going on in dark pools one would hope even if you're not for regulation you'd be for -- >> yeah. you're talking about this is a small component of a bigger market structure issue. so i don't think that you necessarily want to come out with this first. you want to rethink the entire process and then maybe see if there's a place for short sale restrictions later. >> for 75 years since the depression the uptick rule was in place and it worked good. people liked that. but i do agree that it's going to be tough. >> hypothetically it would go down on the tick so you couldn't just push it down. >> exactly. >> is this like a hangover issue? why is it coming up now? >> it's the flavor of the month to bash on banks and markets and it was headline news when they took those lehman bear stearns down, people remember that. >> well, in those cases, it was extreme. >> it was extreme. >> right? so how do you i guess in that
9:51am
case you do what the sec did. you put a list out and say, hey, not on this name. >> you mentioned the uptick rule. has the uptick rule been enforced? >> again, i agree. it's hard to enforce because what's an uptick rule? you can go away and do the stock on an uptick rule and so it's very, very tough to enforce. >> so the uptick rule may not be enough. just because of the technical factors that gordon mentioned. >> i think something had to be done just to, for the public. they had to do something. >> all right, gentlemen. thank you very much. >> thank you. >> alan valdes, gordon charlop. coming up breaking headlines from fed chief ben bernanke, prepared testimony. >> and today's street poll toyota claiming that acceleration issues were caused by sticky pedals. and improperly placed floor mats. this is just a do you believe them or not question? let us know. squawk on the street.cnbc.com is where you may cast that vote. national car rental? that's my choice.
9:52am
9:53am
because with national, i roll past the counter... and choose any car in the aisle. choosing your own car? now, that's a good call. go national. go like a pro.
9:54am
all right. those quiet, stay at home protests in greece, they just got a little out of hand here.
9:55am
i don't think there is anything seriously damaging going on. a lot of pushing and shoving. but clashes shall we call them between protesters and police? >> yes. >> the protesters are protesting social cuts to get the budget in order, cuts like raising the retirement age a little more than a year to 62 1/2 and, you know, this is what the greeks are doing here. unlike the french who, when the french want to protest generally what they do is dump truck loads of cheese in the road and then try to set it on fire. >> right. >> if you've ever tried to set cheese on fire you know that's kind of a hard thing to do. >> it's interesting because it's greece today but during this week there were some not national strikes to the extent of greece but some strikes and walkouts shall we say in portugal and in spain, which are also obviously being looked at
9:56am
as potential debt issues. spain as we all know significantly more important to europe than greece just mathematically, 12.5% of the eu and on top of that you have la ponsa with the pilots as we know going on strike on many flights, almost a thousand canceled because they didn't want to have pilots hired in cheaper locales. so it is a broader issue with the social net shall we say in europe. >> and greece of course the birth place of democracy. so what better place to see people expressing themselves. >> in the streets. mr. nesto? >> hello. i'm betting those protesters wouldn't mind seeing the police budget cut a little bit. huh? you know that little thing on the mcdonald's apple pie? i didn't even know they sell apple pie anymore. caution, contents is hot? mcdonald's is hot, folks, not hugely like fiery molten ice or hot coffee hot but up for the seventh consecutive day. it hasn't done that since october of '07. nudged higher this morning by deutscha bank.
9:57am
they reiterate their bea but say the street is ignoring the international growth. they think the stock is headed to 73 bucks a share. so up seven days in a row. under arm our up 3.5% higher. they think they can get all the way to 27, thus the neutral rating. trans ocean not getting it done. they missed on the top and bottom line and utilization also down from sequentially and from a year ago. and that's down about 2.5% today at its lowest level since mid december. back to you. >> all right. next, breaking news on new home sales. or is it breaking now? help me out, guys. >> breaking in a moment. and fed chief ben bernanke's prepared testimony going to be released. the breaking headlines on that coming in a couple minutes. we'll squeeze one more commercial break in.
9:58am
9:59am
i keep track of my entire business on this spreadsheet... and all of these. paid invoices go right here. bang! - that hasn't been paid yet. - what? - huh-uh. - all my business information is just a phone call away-- to my wife... who's not answering. announcer: there's a better way to run your business. intuit quickbooks online organizes your business in one place. it easily creates invoices and helps you stay on top
10:00am
of your business anytime, anywhere. this is way better. get a 30-day free trial at intuit.com. breaking news. our theme this hour. you can see it moving in front of you. first off we're waiting for ben bernanke. >> there he is. >> he'll speak in front of the house financial services committee. president obama holding key talks with business leaders at
10:01am
the white house. sec talking about whether you can bet stocks will go down. key market moving data out any second. for that we'll go to hampton pearson on the hill because he has the bernanke testimony. >> hi, erin. in his first report to congress this year on the economy and monetary policy, fed chairman ben bernanke says the economic recovery is at its early stages and, quote, a sustained recovery will depend on continued growth in private sector final demand for goods and services. that house financial services prepared testimony says that private sector final demand seems to be growing at a moderate pace. a recent pickup in consumer spending and deterioration in the labor market is abating. however, the fed chairman goes on to say the job market remains quite bleak. he is concerned about 10% unemployment and 40% of those unemployed out of work six months or longer. on the positive side the fed chairman says inflation is likely to be subdued for sometime and the improvement in financial markets that began last spring continues.
10:02am
monetary policy in the fed's exit strategy, we've heard it all before, the fed, the fomc continues to anticipate economic conditions to warrant exceptionally low levels of a fed fund rate for an extended period. however, the fed chairman says in compared testimony the federal reserve will at some point need to begin to tighten monetary policy conditions to prevent development of inflationary pressures. as far as the fed looking ahead at the economy it looks for gdp growth in the 3% to 3.5% range. this year 3.5% to 4% -- 4% in 2011. consumer prices up 1% to 2% between now and 2012. unemployment falling slowly. 6.5% to 7.5% by the end of 2012. there are a couple olive branches to congress on the issue of transparency, pledges for more transparency, and, frankly, the fed becoming far more proactive in its regulation and supervision of large banks and large holding companies.
10:03am
that' it for now. over to rick santelli. >> thanks, hamp. we saw january new home sales and you didn't see them at a very favorable light. down 11.2%. seasonally adjusted annualized unit rate of 309,000. that's down from a slightly upward revision, 348,000. that number for december revised from down 7.6 to down 3.9. so no matter how you slice this, it really isn't good news. now, putting together what hamp said, what ben said, and what the housing numbers are doing, we see that the yield curve is mostly moving in two-year note yields. they moved up several basis points. they were already elevated several basis points. so it seems as though the fed or potentially giving more clarity on exit is the driving force in the market and without any of that at least in the text i've heard so far you might see a little buying going on in the short maturities.
10:04am
now let's zip over to mary thompson. >> thank you, rick. the sec's commissioners will vote on short selling curves today. a new rule that issuer advisory group dubbed uptick light. short sales won't resume unless they are done at a price that is above the best bid on the stock. now, if approved the new rule marks a half step retreat on a rule the sec abolished in 2007 after more than a year of intense academic research. the so-called uptick rule prevented a short sale from occurring unless it happened after the last sale was done at a price that was higher than the sale before. after that rule was abolished and during the financial crisis and the market's subsequent swoon many blamed its abolishment for the market's rapid decline with some including morgan stanley's chairman john mack. in response to the complaints the sec temporarily prohibited short selling in financials,
10:05am
being borrowing a stock to sell at a lower price with the borrower pocketing the difference. the sec decided to consider the uptick rule last year. the result a modified version being considered today. many firms having lobbied for the old rule to be reinstituted while short sellers and others argue older modified versions are not necessary. another issue on the table today the commissioners will vote on whether or not to adopt a road map rather than a specific date for u.s. companies to adopt international accounting standards rather than the currently accepted, generally accepted accounting principles or g.a.p. prince tallahassiplese u.s. believing it is in the best interests. >> let's go around the floor with our market reporters. brian, we did pop a little higher than we are now but up about 54. >> yes, not too bad. we're off the highs. we actually dipped, he when hamp was talking we went down to the 40s, sort of settling down
10:06am
around up 52 points right now. pretty broad based in terms of what's up. tech financials, energy, consumer discretionary. i want to talk on housing since new home sales just came out. toll brothers also out with an earnings report today narrower loss than expected. a situation where they're cautious on pricing, cautious on revenues, and getting a little bit of a drag as you might imagine from that new home sales. look at the whole sector. d.r. horton, ryland and pulte to the downside. i want to touch on returns, dividends. jim cramer talks about chasing a dividend and how good an idea it is right now. we have t.j.x. and altria hiking their dividend, t.j.x. on the heels of their earnings report and chico's which had a strong earnings report. not sure why the name is down today. they initiated a four cents a share dividend. we've kept an eye on h & r block all day the worst performer in the s&p 500.
10:07am
they've said they're not going to meet 2010 guidance. they say why? so early in the year. to date total tax returns are down 6% and they said hey listen, people are doing this at home. they're saving their money. let's go to bertha at the nasdaq. >> we could have told you. that intu it reported great results a few days ago and they said they saw a lot more people using their turbo tax software. meantime these markets here in terms of a cha cha. the same stocks that took us three steps forward are taking us three forward this morning. intel, microsoft, cisco, and google, they're adding weight to the upside. the best performer in the s&p 500 and the nbx today, that's autodesk the automation software maker putting in a good report and good outlook and earning an upgrade as well on the back of its earnings. handsets are also strong this morning, credit suisse first boston is saying that it sees global handset sales a lot stronger in 2010, boosting its outlook. it expects actually that a lot of them are going to be cheaper except apple.
10:08am
they think apple will be able to basically continue to offer the iphone at its premium prices. research in motion, google, as well. one of the things about these handsets is they are putting pressure on the navigation makers. garmin stock has been volatile this morning. it started off to the upside because it did boost guidance for the first quarter but when you look past that headline it is lowering its outlook for margins. it does see lower sales for navigation devices overall because of all that competition coming from the handsets that have that application in them. and one stock i want to show you that looks nice here is salix. pharma. the stock was halted yesterday while the fda panel went over votes on whether to recommend its disease, liver disease drug. they did recommend it and it gave back all it had lost in anticipation of that meeting. let's head down to the nymex and sharon epperson. >> the dow and s&p are holding steady right now, bertha. so are oil prices for the moment as we wait for bernanke's
10:09am
testimony and also at 10:30 we'll get the energy department report on inventories. we had a big decline in the api data yesterday even though the consensus is for a build of about 2 million barrels for crude supplies. we'll continue to watch that and also expect to see declines in gasoline and in distallate fuel supplies. take a look at the clart for natural gas. natural gas hit an overnight low around 4.74 but we have the major storms hitting the northeast. that is giving a little bit of a bounce to natural gas on a technical bounce off of those levels but mike fitzpatrick of mf global poits out if we don't see a bit of a rally with the storms and the weather this week look for next week natural gas prices to perhaps hit $4. keep your eye on the pladium etf in light of the toyota hearings right now. we've seen the slide in those platinum shares, so keep your eye on that. mark? send it back to you. >> thank you very much. let's get more on ben bernanke's
10:10am
testimony. let's go to our senior economics reporter steve liesman. steve? >> mark, hampton gave us a lot of details and if i had to boil it down to one important phrase, he said that the fed will remain exceptionally low for an extended period. those are the words the market needs to hear. if i did it on a scale of 1 to 10, with 10 being more dovish than expected and 1 being as dovish as expected i'd say it's bat 2 or a 3 which is just a little more dovish than expected and some analysts speculated this morning that one of the reasons for that is because of all the sort of mechanical things the fed had done in terms of the supplemental financing program and the discount rise last week that the fed is a little bit afraid may give the impression is the beginning of a tightening cycle. it's trying to give the impression that it is not. a couple things here on the reagan la tri front. the fed saying it welcomes disclosure after an appropriate delay of institutions that borrow from the special facilities. i think that's pretty much new
10:11am
there though not a whole lot of give on other aspects and the fed says, look. you guys haven't done regulatory reform. here are all of the things we are doing and bernanke is still putting the fed's best foot forward saying here are the reasons why we are good for the job. mark and erin? >> all right. thank you very much, steve. we have opening -- breaking news from diana olick. >> i'm just going to talk a little more about the new home sales. obviously a huge disappointment. the street expected an increase. let's tackle something first though. a lot of folks are going to be saying is this weather related because we saw a lot of storms in the northeast during this period. remember, these are seasonally adjusted numbers. so they're comparing january to january. but important to note that in the northeast you did see a big dropoff in sales from 37,000 to 24,000. so, yes, you did lose a lot of sales in the northeast but the rest of the country also seeing big dropoff in the west where you had no weather, 84,000 in december to 74,000 in january. so again not weather related. i'm looking at the months of
10:12am
inventory though. that's what we always have to look at. went from eight-month supply to a 9.1-month supply. we have steadily seen the inventories of new construction rising. obviously new construction is in competition with foreclosed homes and we're seeing more foreclosures coming onto the market as banks are working through the modification process. not a good sign for new construction. prices down again to 203,500 on the median price down 2.4% and returns us to prices we haven't seen since december of 2003 so you're giving back all the gains and again this is a new record low in volume so not a good sign for the new construction market today, mark. >> all right. diana olick, thank you very much for that breaking news. president obama meeting with some of the biggest names in business today. john harwood watching that one. we'll have details right after the break. >> plus, we are waiting and watching ben bernanke to get his turn on the hill. right now it's the turn of the
10:13am
members of the house -- >> like him, love him or hate him, agree or disagree, ron paul is at least always interesting. >> yes. >> it makes it interesting. >> so when ben bernanke begins speaking we'll have that live of course along with the question-and-answer session. we are live everywhere from wall street and washington and i can't find a "w" word. there must be a "w" word. >> waukegan? >> i'm thinking about, you know, in greece. there has to be a building, parthen parthenon. we'll be back.
10:14am
honda accord and toyota camry stand behind their powertrain for up to 60,000 miles. chevy malibu stands behind theirs for up to 100,000 miles. which makes it pretty clear whose standing out front. a consumers digest "best buy" two years running. chevy malibu. compare it to anyone and may the best car win. now, get a low mileage lease on this 2010 malibu for around $199 a month for 39 months. call for details. see your local chevy dealer.
10:15am
10:16am
you are looking live at the house financial services committee. he of the -- >> they're back to the chairman. that might mean we're close to bernanke. we'll see. >> yes. barney frank obviously is speaking. >> -- inviting the rating agencies -- >> and we will be going there live when ben bernanke begins his testimony. >> let's get handsome john harwood in here. president obama planning to address the business round table today in d.c. and john has a few thoughts on that. john? >> mark, the president's trying to communicate the message to business that his agenda, despite the fact that it has some tax increases, despite the fact that he wants to reregulate
10:17am
wall street, is business friendly on health care, trying to reduce health care costs, on energy trying to build a new green energy foundation for this economy. he warmed up his audience with din wer the executive committee last night. he'll speak for about 30 minutes today, not take questions, and we don't expect from the white house to hear a whole lot of new policy from the administration, but this is a critical time of the year not just with the health care legislation and energy hanging fire on the hill but also a mid-term election and we've seen in the past business tends to blow with the political winds. they are less idiosyncrasy logically committed than a lot of the groups on the left and right and obama got a lot of support from business in 2008. democrats are seeing some of that ebb away in the unfavorable political climate and the president is trying to stem some of that tide, guys, and hope they can hold some business support and undercut some of the lobbying against his agenda on capitol hill. >> thank you, john harwood. >> you know who was there? the ceos of both at&t and verizon.
10:18am
and i was just wondering if they had to seat them separately. >> you know, that's not just those two. there are sometimes issues between a lot of ceos and i bet you they do have to seat them a certain way. >> they might have to. >> what happens if the two show up wearing the same suit? >> right. >> catastrophe for a woman. >> an interesting point at least from the business community. obviously valerie jarret was there but i just wonder if there were comments made to the cell phone executives by various people that set one or the other off. there always are. there is barney frank. >> looks like he's got the wind in his sails doesn't he? he has something open. >> his hair is sticking up. >> another guy who is usually pretty interesting no matter what he has to say. >> yes, he is. >> fed chairman ben bernanke set to speak. when he starts we'll have it. >> also testifying on capitol hill today the top of toyota, akio toyoda, himself. the grandson of the great grandson of the founder of toyota and toyota is the focus
10:19am
of our street poll this morning. the company says sticky pedals and floor mats are to blame. it is still investigating. do you agree? squawk on the street.cnbc.com.
10:20am
10:21am
oh, breaking news again!
10:22am
ben bernanke is speaking now in front of the house -- i mean it's breaking because we didn't know this was going to happen did we? let's take the testimony. >> concerted efforts by the federal reserve, treasury department, and other u.s. authorities to stabilize the financial system together with highly stimulative monetary and fiscal policies helped arrest the decline and are supporting a national economic recovery. indeed, the u.s. economy expanded at about a 4% annual rate during the second half of last year. a significant portion of that growth, however, can be attributed to the progress that firms have made in working down unwanted inventories of unsold goods, which have left them more willing to increase production. as the impetus provided by the inventory cycle is temporary and as the fiscal support for economic growth would likely diminish later this year, a sustained recovery will depend on continued growth in private sector final demand for goods and services. private final demand does seem to be growing at a moderate pace
10:23am
bouyed in part by improving general financial conditions. in particular consumer spending has recently picked up reflecting gains in real disposable income and household wealth and tentative signs of stabilization in the labor market. business investment in equipment and software has risen significantly. an international trade, supported by a recovery of the economies of many of our trading partners, is rebounding from its deep contraction of a year ago. however, starts of single family homes which rose noticeably this past spring, have recently been roughly flat and commercial construction is declining sharply, reflecting poor fundamentals, and continued difficulty in obtaining financing. the job market has been especially hard hit by the recession as employers react to the sharp sales declines and concerns about credit availability by deeply cutting their work forces in late 2008 and in 2009. some recent indicators suggest that the deterioration in the labor market is abating.
10:24am
job losses have slowed considerably and the number of full-time jobs rose in january. initial claims for unemployment insurance have continued to trend lower in the temporary services inland, often considered a bellwether for the employment outlook, has been expanding steadily since october. not with standing these positive signs the job market remains quite weak with the unemployment rate near 10% and job openings scarce. of particular concern because of its long-term implications for workers' skills and wages, is the increasing incidence of long-term unemployment. indeed, more than 40% of the unemployed have been out of work for six months or more, nearly double the share of a year ago. increases in energy prices resulted in a pickup in consumer price inflation in the second half of last year but oil prices have flattened out over recent months and most indicators suggest that inflation likely will be subdued for sometime. slack in labor and product
10:25am
markets has reduced wage and price pressures in most markets and sharp increases in productivity have further reduced producers' unit labor costs. the cost of shelter which receives a heavyweight in consumer price indexes is rising very slowly reflecting high vacancy rates. in addition, according to most measures, longer-term inflation expectations have remained relatively stable. the improvement in financial markets that began last spring continues. conditions in short-term funding markets have returned to near precrisis levels. many, mostly larger firms, have been able to issue corporate bonds or new equity and do not seem to be hampered by lack of credit. in contrast bank lending continues to contract reflecting both tightened lending standards and weak demand for credit amid uncertain economic prospects. in conjunction with the january meeting of the federal market committee projections were prepared for ek ig growth, unemployment, and inflation for
10:26am
the years 2010 through 2012 and over the longer run. the contours of these forecasts are broadly similar to those i reported to congress last july. fomc participants continue to anticipate a moderate pace of economic recovery with economic growth of roughly 3% to 3.5% in 2010 and 3.5% to 4% in 2011. consistent with moderate economic growth participants expect the unemployment rate to decline only slowly to a range of roughly 6.5% to 7.5% by the end of 2012 still well above their estimate of the long run sustainable rate of 5%. inflation is expected to remain subdued with consumer prices rising at rates between 1% and 2% in 2010 through 2012. in the longer term inflation is expected to be between 1.75% and 2% the range that most fomc participants judge to be consistent with the federal reserve's duellman date of price
10:27am
stability and maximum employment. over the past year the federal reserve has employed a wide array of tools to promote economic recovery and improved price stability. the target for the federal funds rate has been maintained at an historically low renange of zer to 0.25% since 2008. we continue to anticipate subdued inflation trends and stable inflation expectations are likely to warrant exceptionally low levels of the federal funds rate for an extended period. to provide support to mortgage lending and housing markets and to improve overall conditions in private credit markets, the federal reserve is in the process of purchasing $1.25 trillion of agency mortgage backed securities and about $175 billion of agency debt. we've been gradually slowing the pace of these purchases in order to promote a smooth transition in markets and anticipate these transactions will be completed by the end of march. the fomc will continue to evaluate its purchases of
10:28am
securities in light of the evolving economic outlook and conditions in financial markets. in response to the substantial improvements in the functioning of most financial markets the federal reserve is winding down the special liquidity facilities it created during the crisis. on february 1st a number of these facilities including credit facilities for primary dealers, lending programs intended to help stabilize money market mutual funds and the commercial paper market and temporary liquidity swap lines with foreign central banks were all allowed to expire. the only remaining lending program for multiple borrowers created under the federal reserve emergency authorities, the term asset backed securities loan facility is scheduled to close on march 31st for loans backed by all types of collateral except for newly issued cmbs and on june 30 for loans backed by newly issued cmbs. in addition to closing its special facilities the federal reserve is normalizing lending to commercial banks through the discount window. the final auction of discount
10:29am
window funds to depositories to the term auction facility which was created in the early stages of the crisis to improve liquidity of the banking system will occur on march 8th. last week we announced that the maximum term of discount window loans which was increased to as much as 90 days during the crisis would be returned to overnight for most banks as it was before the crisis erupted in august, 2007. to discourage banks from relying on the discount window rather than private funding markets for short-term credit last week we also increased the discount rate by 25 basis points, raising the spread between the discount rate and the top of the target range for the federal funds rate to 50 basis points. these changes like the closure of most of the special lending facilities earlier this month are in response to the improved functioning of financial markets, which has reduced the need for extraordinary assistance from the federal reserve. these adjustments are not expected to lead to tighter financial conditions for households and businesses and should not be interpreted as signaling any change in the
10:30am
outlook for monetary policy, which remains about the same as it was at the time the january meeting of the fomc. although the federal funds rate is likely to remain exceptionally low for an extended period as the expansion matu matures the federal reserve at some point needs to begin to tighten monetary conditions to prevent the development of inflation tri pressures. not with standing the substantial increase in the size of its balance sheet associated with its purchases of treasury and agency securities, we are confident that we have the tools we need to firm the stance of monetary policy at the appropriate time. most importantly, in october, 2008, the congress gave statutory authority to the federal reserve to pay interest on banks' holdings and reserve balances at federal reserve banks. by increasing the interest rate on reserves the federal reserve will be able to put significant upward pressure on all short-term interest rates. actual and prospective increases in short-term interest rates will be reflected in turn in longer-term interest rates and
10:31am
financial conditions more generally. the federal reserve has also been developing a number of additional tools to reduce the large quantity of reserves held by the banking system which will improve the federal reserve's control of financial conditions by leading to a tighter relationship between the interest rate paid on reserves and other short-term interest rates. notably our operational capacity for conducting reverse purchase agreements, a tool that the federal reserve has historically used to absorb reserves in the banking system is being expanded so such transactions can be used to absorb large quantities of reserves. the federal reserve is also currently refining plans for a term deposit facility that could convert a portion of deposit orie institutions into deposits that are less liquid and could not be use today meet reserve requirements. the fomc has the option of redeeming or selling securities as a means of reducing outstanding bank reserves and applying monetary restraint. of course, the sequencing of
10:32am
steps and the combination of tools the federal reserve uses as it exits from its currently very accommodative policy stance will depend on economic developments. i've provided more discussion on this in recent testimony. the federal reserve is committed to ensuring that the congress and the public have all the information needed to understand our decisions and to be assured of the integrity of our operations. indeed, on matters related to the conduct of monetary policy the federal reserve is also one of the most transparent central banks in the world providing detailed records and explanations of its decisions. over the past year, the federal reserve also took a number of steps to enhance the transparency of its special credit and liquidity facilities, including the provision of regular, extensive reports to the congress and the public and we have worked closely with the gao, the sig t.a.r.p., congress, and private sector auditors on a range of matters relating to these facilities. while the emergency credit and liquidity facilities were
10:33am
important tools for implementing monetary policy during the crisis we understand that the unusual nature of those facilities creates a special obligation to assure the congress and the public of the integrity of their operation. we would welcome a review by the gao of the federal reserve's management of all facilities created under emergency authorities. in particular, we would support legislation authorizing the gao to audit the operational integrity, collateral policies, use of third party contractors, accounting, financial reporting, and internal controls of the special credit and liquidity facilities. the federal reserve will of course cooperate fully and actively in all reviews. we are also prepared to support legislation that would require the release of the identities of the firms that participated in each special facility after an appropriate delay. it is important that the release occur after a lag that is sufficiently gone that investors will not view an institution's use of one of the facilities as a possible indication of ongoing
10:34am
financial problems, which would undermine market confidence in the institution or discourage use of any future facility that might become necessary to protect the u.s. economy. looking ahead we will continue to work with the cess esongress identifying approaches to enhance transparency. in particular, it is vital that the conduct of monetary policy continue to be insulated from short-term political pressures so that the fomc can make policy decisions in the longer term economic interests of the american people. moreover, as the confidentiality of discount window loans to individual depository institutions must be maintained so that the federal reserve continues to have effective ways to provide liquidity to the depository institutions under circumstances where other sources of funding are not available. the federal reserve's ability to inject liquidity into the financial system is critical for preserving financial stability and for supporting depository's key role in meeting the ongoing
10:35am
credit needs of firms and households. strengthening our financial regulatory system is essential for the long-term economic stability of the nation. among the lessons in the crisis of the crucial importance of macro prudential regulation. that is regulation and supervision aimed at addressing risks to the financial system as a whole and the need for effective consolidated supervision of every financial institution that is so large or interconnected that its failure could threatening the functioning of the entire financial system. the federal reserve strongly supports the congress's ongoing efforts to achieve comprehensive financial reform. in the meantime to strengthen the federal reserve's oversight of banking organizations we have con diktd an intensive self-examination of our regulatory and supervisory responsibilities and have been actively implementing improvements. for example, the federal reserve has been playing a key role in international efforts to toughen capital and liquidity requirements for financial institutions, particularly
10:36am
systemically critical firms and have been taking the lead in ensuring compensation structures at banking organizations provide appropriate incentives without encouraging excessive risk taking. the federal reserve is also making fundamental changes in a supervision of large, complex bank holding companies, both to improve the effectiveness of consolidated supervision and to incorporate a macro prudential perspective that goes beyond the traditional safety and soundness of individual institutions. we are overhauling our supervisory framework and procedures to improve coordination within our own supervisory staff and with other supervisory agencies and to facilitate more integrated assessments of risk within each holding company and across groups of companies. last spring the federal reserve led the successful supervisory capital assessment program poplarly known as the bank stress test. an important lesson of that program was that combining onsite banking examinations with a suite of quantikwan tate if a
10:37am
analytical tools can better identify potential risks. in that spirit the federal reserve is also in the process of developing an enhanced quantative surveillance program for holding companies. it will provide a more complete picture of the risks facing these institutions and the broader financial system. making use of the federal reserve's unparalleled breadth of expertise this program will apply a multidisciplinary approach that involves economists, specialists, and in particular financial markets, payment systems experts, and other professionals as well as bank supervisors. the recent crisis has also underscored the extent to which direct involvement in the oversight of banks and bank holding companies contributes to the federal reserve's effectiveness in carrying out its responsibilities as a central bank including the making of monetary policy and the management of the discount window. most important, as the crisis has once again demonstrated, the
10:38am
federal reserve's ability to identify and address diverse and hard-to-predict threats to financial stability depends critically on the information, expertise, and powers that it has by virtue of being both a bank supervisor and a central bank. the federal reserve continues to demonstrate its commitment to strengthening consumer protection in the financial services arena. since the time of the previous monetary policy report in july, the federal reserve has proposed a comprehensive overhaul with the regulations governing consumer mortgage transactions and we are collaborating with the department of housing and urban development to assess how we might further increase transparency in the mortgage process. we have issued rules implementing enhanced consumer protections for credit card accounts and private student loans as well as new rules to ensure that consumers have meaningful opportunities to avoid overdraft fees. in addition the federal reserve has implemented an expanded consumer compliance supervision program for nonbank subsidiaries of bank holding companies and foreign banking organizations.
10:39am
more generally the federal reserve is committed to doing all that can be done to ensure that our economy is never again devastated by a financial collapse. we look forward to working with the congress to develop effective and comprehensive reform of the financial regulatory framework. thank you, mr. chairman. >> mr. chairman, one of my -- >> we are going to get right back to the bernanke question-and-answer session on capitol hill. in the meantime i'm mike huckman cnbc pharmaceuticals reporter with breaking news on dow component and the world's biggest drug company pfizer. the company confirming for cnbc that the food and drug administration has approved its new and improved vaccine for pneumonia called prevnar 13. this was one of the most key products pfizer got in its recent purchase of wyath and covers more strains of pneumonia than the previous vaccine. it is a multibillion dollar product. analysts think this one is going to be as well and in addition to
10:40am
it being approved for infants and children as old as 5 the company plans to seek fda approval sometime this year of the same vaccine for adults which analysts think could add hundreds of millions, maybe even more than a billion dollars in revenue for this product. the fda according to pfizer has approved a new and improved pneumonia vaccine, a key new product for the world's biggest drug company. back to capitol hill. >> i want to talk now about the central question of employment. getting people back to work is important, socially most of all but also for the overall economy. i was pleased to see you note on a couple occasions, we debate history but you debate recent history, a debate over policy as to whether economic stimulus should take place. we do have a deficit and when we do stimulative things it does in the short term add to the deficit. i would note both by expenditure
10:41am
and tax cuts. people have taken to talking about the total stimulus numbers if it was all expenditure. about 30% of it was tax cutting and people may or may not think that worked well. but i was struck to note in your statement you say concerted efforts to stabilize the financial system together with highly stimulative monetary and fiscal policy and in the report in the very first paragraph the u.s. economy turned up in the second half supported by an improvement in financial conditio conditions, stimulus for monetary and fiscal policies, and then again on page 8, a development that helped rebuild household wealth and income was lifted by provisions in the fiscal stimulus package. so these are three references to
10:42am
the extent to which the stimulus package, which this congress adopted, aided in reducing unemployment and stimulating the economy. that's become controversial because you have to do it again. am i accurate in interpreting your comments as saying that the stimulus, without saying whether it was the best possible way to do it but the fact that the stimulus was adopted did contribute to the improvement we're seeing in economic activity? >> yes, mr. chairman. i think most economists would agree that the stimulus has created jobs relative to where baseline would have been in the absence of the stimulus. of course we don't know what that alternative would have been and therefore it is very difficult to assess. >> we know one alternative which was to do nothing because if people say the major thing was the deficit, there was nothing you could have done that would have been short-term stimulus that would have not added to the deficit whether tax reduction or others. i know there are people who argue if you do tax reduction right it means more revenue. i do remember your predecessor mr. greenspan asked by one of my republican colleagues if it wasn't true that if you cut taxes you could raise revenue
10:43am
overall, and he said that was theoretically possible but it had not happened in his lifetime. i don't think it's happened since then either. but this is important, that -- now i say that for this reason. we should have a thoughtful debate about what to do next. but when we are bogged down in debate about whether we should have done anything it's not very helpful. i appreciate your comments on that. so let me ask. at this point going forward and i understand your primary responsibility is monetary policy. should we say that concern for not increasing the deficit is so important that nothing further should be done that would have a fiscally stimulative effect? >> mr. chairman, you know, that's really a congressional tradeoff that has to be made. obviously unemployment is the biggest problem we have. if the federal reserve and congress can address that issue we need to find ways to do that but there are difficult tradeoffs. >> i appreciate it. inflation is not now or in the near term -- the last point i
10:44am
would make if you could comment briefly we hear this threat that the rating agencies might reduce our debt rating because of the deficit. do you think there is any realistic prospect of america defaulting on its debt in the foreseeable future? >> there certainly, not unless congress decides not to pay which i don't anticipate, no. i don't anticipate any such problem. i don't anticipate any downgrade. of course, there are real long-term budget problems that need to be addressed. >> i agree but not fear of default? giving investment advice, if you can get a good enough risk on treasuries buy them. now the gentleman from alabama. >> thank you, mr. chairman. chairman bernanke, i think chairman frank mentioned the deficit in passing and the debt and that's what i want to ask you about. really, to me that's the elephant in the room. we have our debt is going to
10:45am
double in the next five years, triple in the next ten years, and it's fueled by historic deficits. i heard this morning on tv that we're having medications across the united states this year of children and even adults that are kind of walking out on the thin ice and they walk out maybe day after day and they get some comfort that nothing happens and then ice is dangerous and i submit that this type of budget path is dangerous and the deficits we're running are dangerous. and i would ask you, number one, i don't believe that our present budget path is sustainable so my first question would, to you, is our budget path sus taintainabl? second, is there a need for an urgent need for the congress? you said it's up to the congress to come up with a concrete plan
10:46am
to change that budget path? do you believe there is an urgency in that? >> congressman, we asked about sustainability, you're talking about the medium-term structural deficit that remains even after the economy is returned close to more normal levels of activity. estimates of the structural deficit range from 4% by the omb to up to 7% of gdp in some scenarios run by the cbo. those numbers are above a sustainable level and i think in order to maintain a stable ratio of debt to gdp you need to have a deficit that's 2.5%, 3% at the most so i think, yes, under current projections we have a deficit and a debt that will continue to grow interest rate costs that will continue to grow. so i do think it's very important that we begin to look at the path, the trajectory of the deficit as it goes forward and there could be a bonus there to the extent that we can
10:47am
achieve a credible plan to reduce medium to long-term devers sits we'll actually have more flexibility in the short term if we want to take other kinds of actions. >> right. so the current budget path is not sus taitainable is it? >> given the numbers projected, that's right. >> and it may be upon us sooner than we think. is that a good analogy that i've used of walking on thin ice? >> yes, sir, that's true. it's not necessarily just a long-term issue because it is possible that bond markets will become worried about the sustainability and we may find ourselves facing higher interest rates even today given that concern. >> is it critical that we have a long-term plan and we have it now? >> yes. i think it's very important that congress -- i realize it is extremely difficult and i don't under estimate it in any way how difficult it is and it's also difficult to address issues
10:48am
which are still a few years away. i understand that as well. but it would be very helpful even to the current recovery, to markets, confidence, if there were a sustainable, credible plan for a fiscal exit if you will. >> all right. if we don't address them now, i'm not sure we can address them, you know, in an effective way two or three years from now or four or five years. >> it'll become increasingly difficult because the cuts you need to make will be even sharper or the tax increases even sharper. >> i very much appreciate your testimony. and i do believe that you have addressed many of the concerns and i'm happy that you have mentioned that the historical legislation we passed in a bipartisan way has been an important tool. thank you. >> the gentleman from north carolina? >> chairman of the subcommittee. >> thank you, mr. chairman.
10:49am
chairman bernanke, i neglected in the press of my opening statement and the time constraints to congratulate you on your recent confirmation to a second term as chair of the federal reserve. and i wanted to do that and welcome you back to the committee. in response to a question that chairman frank asked, you made it clear that you don't want to meddle too much in what the congress does on these things but -- and i'm not going to ask you to stray over there. i'm more interested in what i perceive to be as reading between the lines of what you said is that you think the fed, itself, has used all the tools
10:50am
that are available to the federal reserve to help facilitate job creation, actually probably more than would normally be doing to facilitate job creation and create maximum sustainable employment since you don't really have a lot of concerns about the other part of the duellman dadual mandate which is price stability. am i reading that correctly or are there other specific things that the fed tool kit might allow the fed to do to create that -- the environment for more job creation? >> i think one set of tools we have that we could continue to
10:51am
work on as regulators is to try to get credit flowing again. we know small business lending is closely tied to job creation. we know there are problems with bank lending to small businesses and we have -- i don't know if you want me to take your time to go through some of these things, but we're collecting more information. we're doing more consulting. we're trying to train examiners and doing everything we can to make sure that credit-worthy small businesses can get credit and that banks will be willing to take a success look at small businesses to make sure they have access to credit. >> i presume that will be the subject of testimony by folks at the friday hearing primarily so i won't ask you to elaborate more on that in this context. what other kinds of things in your tool kit might be considered or actually, i guess maybe the question i should be
10:52am
asking is are the short-term consequences anything you might use in your tool kit, the short-term benefits were for the long-term consequences, i guess or do you think that the fed really has done everything it should be doing other than trying to facilitate credit as you just mentioned in terms of monetary policy. the emergency steps you've taken. are from other things that you can prudently do, i guess is the question to facilitate job creation? >> as you point out, we have extremely accommodative monetary policy with very low interest rates and also large purchases of securities that expand our
10:53am
balance sheet. so that's a very accommodative economy supporting job creation, the fomc will continue to evaluate whether additional stimulus may be necessary depending on how the economy evolves. so we'll continue to look at that, i think. >> so you're in the same posture that we're in on the other side. your policies are creating stresses on your own balance sheet that over time might have consequences and you'll have to get out of them and what you're saying is you have to look at those long-term consequences of more debt and more deficits so that we have an exit strategy to get back to a more normal kind of fiscal policy at the same time you're getting back to a more normal monetary policy. am i misstating that? not at all. one of the greatest challenges of extraordinary policies that
10:54am
we've both taken is at some point we might return to a more normal stance and finding a way out that's credible and understandable and clear is very important for confidence. >> okay. thank you, mr. chairman. >> the gentleman from texas, mr. paul? >> i thank you, mr. chairman. the federal reserve transparency act which has passed the house already is something that the federal reserve obviously has been opposed to and one of the reasons they're opposed to it, as i understand it, it would politicize the monetary policy which is not what the bill actually does, but one reason -- the other reason they give is if congress had any subtle influence, it would inflate to more than what the federal reserve might want to. it's sort of ironic, the federal reserve kept interest rates too low, too long and the consensus now in the financial community is that is true. interest rates are still down at
10:55am
1%, so hardly could the congress influence the federal reserve in a negative way by causing them to inflate even more, but there has been a political cozy relationship between congress and the federal reserve although the congress has been derelict in their responsibilities to perform oversight, but when it comes to debt, the fed is there and they can monetize the debt and keep interest rates low. the congress can keep spending and get re-elected. they don't have to raise taxes so the fed can act as a taxing authority and you dilute the value of the money. prices go up and price inflation is a tax and when people pay a lot more for their medical care than they used to, they ought to think about the inflationary tax. also the fed accommodates by liquidating debt. the real debt actually goes down. so in many ways, the congress and the fed does have a pretty cozy political relationship, but
10:56am
i would like to get to more specifics on the transparency bill because it has been reported in the past that during the 1980s that the fed facilitated a $5.5 billion loan to stop hussein and he bought weapons from our military still complex and also that is when he invested in a nuclear reactor. a lot of cash was passed through and a lot of people supposed it was passed through the federal reserve when there was a provisional government after the 2003 invasion. that money was not appropriated by the congress as the constitution says. also there's been reports that the cash used in the watergate scandal came through the federal reserve and when investigators back in those years tried to find out they were always stonewalled and we couldn't get the information. my question is you object to this idea they would say give it six months and we can find out what we're doing and give it ten years. would you grant that the
10:57am
american people deserve to know whether the federal reserve has been involved with this and what kind of shenanigans are involved with foreign countries and foreign central banks and you're working right now to bail out greece for all that we know. would you grant that after ten or 15 years the american people deserve to know, it seems like the fed was not involved with this at all and it would be to your advantage to say we don't work like that and why not open the books ten years back and find out about the matters. >> congressman, the specific allegations you've made are absolutely bizarre and i have no knowledge remotely to what you just described. as far as ten years, after five years, we completedpts of every word said in the fomc meeting and you have every word in front of you. >> can we get results of every agreement, every loan made to foreign governments? >> yes, sir. >> i'll tell you what, there's been a lot of information when
10:58am
this came out in the early years they did make an effort and the federal reserve never participated in this. it's easily covered up and eventually though, because the system is not viable and that it is this cozy relationship that we will get to the point where something will have to be done about this financial system, so as long as we continue this, this cover-up and quite frankly, i do not believe that the real effort to facilitate some of these things that have been done in the past would become available to us because it is in the interest of the federal reserve to make sure that the people don't know and right now today, is it quite possible that -- have you talked with any international groups about us parents pa participating in a bailout of greece? >> i have not. >> the federal reserve, under the law, are capable of doing this. isn't it correct that the fed can buy debt of other nations
10:59am
under the monetary control act of 1980. is that not permissible? >> yes, that's true, but we have no plan whatsoever to be involved in foreign bailout or anything of that sort. >> if they did it certainly would be to our advantage to know about it. i yield back. >> the gentleman's time has expired. i recognize the gentleman from pennsylvania, this committee will look into the allegation that under presidents reagan and nixon the federal reserve was engaged in those activities. the gentleman said that during the '80s the federal reserve lent money to saddam hussein and during watergate they did this and i assume you agree that we look into what happened under those presidencies. the gentleman from pennsylvania. >> thank you, mr. chairman. >> mr. chairman, i'm not going to take all of my time because i know we have the interest of other committee members, but i'm particularly interested in some of the communications we've had recently on the commercial real estate problem.

Terms of Use (31 Dec 2014)